Eurozone PMI shows continued decent growth… outside of France

Eurozone growth remains resilient overall, but France is deteriorating while renewed energy-cost inflation keeps the European Central Bank cautious.

• The eurozone composite PMI fell from 53.1 to 51.9 in October, but remained at a level consistent with decent growth.
• Third-quarter GDP growth was probably still solid according to sentiment indicators, although industrial output disappointed in July.
• The resilience early in the third quarter partly reflected a temporary decline in energy prices, while concerns about France emerged later in the quarter.
• France’s PMI dropped from 51.1 to 48.4, a level associated with contraction, making it the main source of weakness in the eurozone.
• Input prices rose sharply across the eurozone, especially in manufacturing, as higher energy costs increased businesses’ cost bases while selling prices rose more moderately.

Takeaway: Resilient activity creates hawkish pressure on the ECB, but France’s deterioration complicates the outlook; ING therefore expects interest rates to remain unchanged at the next meeting.